Government programs are very susceptible to corruption. The various government programs created to cope with the covid-19 pandemic, such as the Paycheck Protection Program (PPP) are no exception to this kind of corruption and abuse.
Several individuals have already been caught for abusing the PPP loans which were designed to provide loans to small businesses to assist them keep their workers on the payroll during the financial fallout from the coronavirus.
According to a Department of Justice Office of Public Affairs (DOJ OPA) news release, "Little Rock Woman Charged with Covid Relief Fraud" on July 16, 2020, Ganell Tubbs of Little Rock was indicted on allegations of fraudulently receiving nearly $2 million of the PPP loans. Tubbs allegedly used $8,000 to make a payment on her student loans. She also spent $6,000 on personal shopping. This is not what the PPP is designed for.
Tubbs is not the only person abusing the PPP loans. In another DOJ OPA release, "Arkansas Project Manager Charged in Oklahoma with Covid-Relief Fraud" dated June 4, 2020, Benjamin Hayford of Centerton was charged with filing fraudulent PPP loans amounting to more than $8 million.
Fortunately, these cases have been caught quickly. The secretive nature of fraud makes it difficult to detect with much speed. More often than not, it is caught long after the damage has already been done. A 2020 "Report to the Nations" by the Association of Certified Fraud Examiners (ACFE) estimates that the typical time between when a fraud begins and when it is detected is 14 months.
In general, abuse of public resources negatively affects the delivery of services by diverting resources from important services such as public education and public health. In the case of PPP, there are other struggling businesses that could use these dollars to pay their workers.
How then do we minimize the abuse of programs such as PPP or similar programs at the state level such as the Ready for Business Grant Program and other programs the state will create in future?
The PPP requires that businesses that receive more than $2 million be fully audited while those that receive less may be randomly audited. It is easy to say that all companies should be audited, but auditing can be costly. Even if all the recipients are audited, that does not guarantee that all the fraud in the programs will be caught. The 2020 ACFE report cited above reveals that internal and external auditing account for only 19 percent of the initial detection of occupational fraud.
There is, therefore, a need to encourage other ways of detecting fraud.
According to the ACFE report, tips from whistle-blowers account for 43 percent of the initial detection of occupational fraud. Thus, in addition to audits, it is important to incentivize people to report fraud. According to the National Whistleblower Center, between 2007 and 2019 the IRS has been able to recover $5.7 billion while awarding nearly $932 million through the IRS Whistleblower Reward Program. The program rewards whistle-blowers 15 percent to 30 percent of proceeds from tax fraud or tax underpayments.
Another way is to be very transparent by publishing online recipients' details including their names, addresses, number of employees and the amount that they receive. The idea is to empower residents to be a part of the process of detecting abuses. If unscrupulous applicants are using fake addresses, residents can assist to detect such abuses. It is encouraging on this front that the U.S. Treasury reversed its earlier stand not to disclose details of the PPP recipients. Similarly, the Arkansas Democrat-Gazette ought to be commended for publishing the list of Ready for Business grant recipients on its website.
Corruption is real. No government program is immune. What is also real is its negative impact. This negative impact is even higher during economic hardships. To mitigate hardship and save tax dollars, we need a concerted effort by the government and citizens working together to recognize and report corruption.
The more eyes scrutinizing these programs, the higher the chances of catching fraud and, therefore, saving taxpayer dollars.
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Mavuto Kalulu is a policy analyst with the Arkansas Center for Research in Economics (ACRE) at the University of Central Arkansas in Conway and co-author of "Access Arkansas: County Web Transparency," a report on the accessibility of fiscal, administrative, and political information in Arkansas. The views expressed are those of the author and do not necessarily reflect those of UCA.